The Premier League Is Getting Sucked Dry

With all the news surfacing about Manchester United’s debt re-shuffling, I think it’s time we admitted the truth. Several EPL teams are being run in the equivalent manner of Nortel and Enron. The league may still have a record television contract and rapidly increasing revenue streams, but it could all come crumbling down in a hurry.

It’s no secret that clubs are being bought up by foreign ownership who view them as a revenue source, not always as a sporting club. This evolution is exactly the same in other major sports leagues. What is being done drastically different than in North America, however, is the lack of fiscal policy in place to ensure the financial health of these clubs.

Portsmouth made close to £99m on recent transfers and yet cannot afford to pay their player’s wages. Manchester City reported a loss of £148m in 2009. Liverpool is sitting on over £300m in debt since their takeover by American owners.

The worst example, however, is Manchester United. Since the Red Devils takeover by the Glazer family (who own the Tampa Bay Buccaneers), the club has taken on record debt.

The Glazers bought Man U for a total of £810m, but only £270m was their own money and the rest was borrowed. They saddled the club with the extra £540m in debt. Since that time, they have been liable for almost £325m in debt payments, some of which were unpaid and have been tacked onto the club’s debt load.

The club currently owes over £700m and pays close to £67m a year in interest.

What has this meant for the average Man U fan? They’ve got the privilege of buying tickets that have doubled in price.

Man U made a profit last year of £26m, but only because they sold Cristiano Ronaldo for a record fee of £81m. Selling your best asset is not exactly good long term business.

The latest scheme by the Glazers is to refinance almost £500m in debt as a bond issuance using Old Trafford and other club assets as security. This is an attempt to reduce the debt rate and payments. They may even spin off a holdings company with their training ground, Carrington, as the main asset and lease it back. Who gives up an asset to another company and then pays to lease it from the company they just gave it to? You don’t need an MBA or to be a chartered accountant to see the ridiculous ploy here.

It’s easy to see that the Premier League has a problem, but it’s not quite as easy to figure out a solution. I really see two ways out, and neither one is likely to be welcome.

The first thing most EPL clubs (and those from other leagues as well) need to do, is stop out-spending their revenue. This may seem simple, but in a constant “arms race” to be the best, clubs are spending ridiculous sums of cash for marginal players. While a club like Liverpool has the money to absorb a few mistakes, smaller clubs clearly cannot.

Clubs need to harvest talent from their youth programs or follow the path of Arsene Wenger and buy talented youngsters, rather than stars in their primes.

More importantly, the Premier League should set financial standards in order to maintain league status. UEFA already uses this type of system to ensure Champions League participants are not financially delinquent. The EPL could require some type of debt-to-revenue ratio in order to be considered an active member of the league. This would ensure that clubs are not over-leveraged and squeezed for cash, while still allowing the bigger clubs to spend their giant revenue.

I would argue even further for a salary cap or a transfer fee cap, but I know those ideas are too revolutionary for European soccer at this point in time.

The league needs to wise up and realize what the fans of many clubs already have, that massive increasing debt and crippling salaries will ruin the teams they once loved.